Labour must define nothing less than a new economic settlement

For the second week in a row, we’ve seen media speculation about the Chancellor’s plans on tax. We’re in the grip of the sharpest and deepest economic decline in a century. The economic stimulus has been inadequate, the test and trace system is still inadequate, and the public health messaging has never got beyond inadequate.

People working in sectors like retail, hospitality, manufacturing, aviation, and engineering are deeply worried about their future. We have one of the highest death rates in the world and one of the worst-hit economies. Yet instead of responding to the needs of businesses and workers, the Prime Minister is more worried about his unsettled backbenchers.

As the pandemic has gone on, Downing Street’s claims to have been following the scientific advice has continually rung hollow. But it’s not just the Prime Minister who is ignoring expert advice. With a budget and a spending review taking place before the end of the year, Rishi Sunak seems to be deciding the fate of people’s jobs and livelihoods based on what Conservative MPs will stomach rather than what might work. 

The failure to deliver a workable plan for the recovery means our economy is still faltering. A second spike in Covid-19 this winter will take yet more lives, inflict greater damage on the economy, and further hit tax revenues through lower than expected consumer spending, income and profits. Public sector borrowing is already projected to hit over £300bn this year as a result, a figure that will only rise as a result of a slow recovery.

But what does the Chancellor have to show for that level of borrowing? Instead of bold action to support the economy and to help those suffering the most, the government looks set to end the furlough scheme, to offer only meagre support to those industries most at risk, and to plunge the economy off another cliff with a no-deal Brexit. The ‘we will do whatever it takes’ mantra has proved to be just an empty slogan.

It’s never been more evident that we need a Labour government. Our leadership and frontbench have struck the right balance between supporting specific measures to tackle Covid, whilst being critical of the government’s wider response. But as we go into the autumn, we need to shift the narrative from one about the incompetence of the Tories, to one about why Labour has the right plan to build back better.

The scale of the challenge we face as a party is monumental. We need to win back the ‘Red Wall’ seats we lost in 2017 and 2019, win back the Scottish seats we lost in 2015, and win again in seats from Dover to Northampton, Swindon to Cleethorpes, which we lost in 2010. The path back to power starts with credible and competent leadership. But what unites voters in these lost constituencies is a willingness to support Labour when we show a credible economic offering and a commitment to sound public finances. Starting with ‘Labour Connected’ later this month, we must quickly reestablish ourselves as a party that can be trusted with the purse strings.

It means building on our last manifesto commitments around an active and strategic industrial policy, without frightening the business community with talk of seizing shares. It also means having a clear position on tax. That doesn’t mean we set out Labour’s first budget now, but we should be clear about the principles that might underpin it. The cornerstone of our economic vision must be fairness. That means the burden of tax is shared more equally, and the benefits from a properly funded public sector helping more people as a result. We need to define nothing less than a new economic settlement to create a new future.

There is no justification for the fact that income is taxed more highly than wealth. Reform to capital gains tax would mean income from wealth would be taxed at the same level as income from work. We must also ensure everyone can equally benefit from tax policies that seek to change behaviour. Of course we need to save for retirement, but it is unfair that pension tax relief disproportionately helps the highest earners, while only 10% goes to the poorest half of society.

Covid-19 exposed the inequality in our society. As social carers, shop workers and NHS staff took their lives in their hands every day, higher-income earners worked at home, protected from the virus. We have to be clear that those with the broadest shoulders will have to pay their share. Those who were lucky enough to escape to their holiday home on the south coast during the lockdown will need to pay more tax on their assets.

Next, we need to embed sustainability. To meet our net zero goals, we should be unafraid to introduce more environmental taxes that contribute to tackling the climate crisis. Global tech firms and online retailers use their lawyers and accountants to structure themselves to pay minimal tax here. The digital services tax is welcome but we can aim higher than its 2% surcharge. 

But our vision for tax shouldn’t just be about who pays what. It should also be about responsibility and creating incentives for businesses to do the right thing. From day one, the next Labour government should use its buying power to ensure businesses seeking public sector contracts don’t use loopholes and complex structures to avoid paying tax. A key question for any procurement process should be whether the business is a Fair Tax Mark company.

We should also use the tax system to support the companies that can create the economy we want to see. Just like we did at the last election, the next manifesto must also set out a compelling vision to boost research, innovation, and discovery in the sectors that will create the jobs and growth we need for the future.

After a decade of austerity, Covid-19 has changed the debate on the economy. When the next election comes, voters will remember the choices that this government has made and the sacrifices of those who have fought to protect us from the virus, or lost their jobs as a result of it. It is Labour’s duty to present a vision of a different way of doing things, including with a tax system that has fairness, sustainability, responsibility and growth at its heart. It’s the right thing to do – and with the right principles, it can help us win again too.